Finally, The Fed Does Something Right

Like many people, I have been angered and outright disgusted by the mainstream media’s disgraceful behavior during the recent presidential campaign. Back in the late 1970s, when American journalism as we used to know it still existed, my college professors taught us that one of the purposes of a free press is to serve as a watchdog over the government. Since then that noble idea has been turned on its head, as a good part of the media has become an operating arm of the ruling class and one of the two major political parties.

But what particularly bugs me is when this liberal bias crops up where I don’t expect nor want to see it. In this case, I am referring to Bloomberg and its sister Businessweek magazine, of which I have been an avid reader and subscriber for the past several years. Unfortunately, this otherwise excellent business and financial news source has succumbed to the same liberal cheerleading as its mainstream brethren.

But like a stopped watch that is accurate twice a day, occasionally someone at Bloomberg does get it right. The day after Donald Trump’s shocking victory – which wouldn’t have been so shocking if more people had paid attention – Bloomberg ran an op-ed piece on its website by columnist Mark Gilbert entitled “Blame the Fed for Trump's Victory.”

“There's a case to be made that the so-called distributional effects of the monetary policies pursued by the world's central banks in an effort to stave off recession and avert deflation have directly contributed to the current disaffection with the status quo,” Gilbert wrote. “Quantitative easing and record-low interest rates from the Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England have mostly helped asset prices -- which isn't much help to those who don't own financial assets. Early indications are that 53 percent of Americans aged 45 and over backed Trump; that's the demographic seeing its retirement planning undermined by the lowest bond yields the world has ever seen, a direct consequence of central bank policies.”

“The benefit of hindsight is making it harder not to feel that quantitative easing may have done more harm than good,” Gilbert adds. “Trump's victory, Britain's Brexit vote and the rise of populism all around the world suggest that large swathes of the electorate may be as dissatisfied with monetary policy as they are with their current political leadership. Voters, though, get the chance to change their governments; they don’t have the same opportunity to expel the unelected guardians of monetary stability. Maybe the election of President Trump is evidence that central banks should at least be debating a different course of action.”

President-elect Trump will have a lot on his plate when he takes office in late January. But trying to put his stamp on the Fed will be a worthwhile exercise for him to pursue.

Before I read Gilbert’s spot-on column, I spent some time reviewing the backgrounds of each member of the Fed’s Federal Open Market Committee, the body that sets monetary policy. Here’s a list of the current voting members as well as those alternate (i.e., non-voting) members.

Notice anything? Do you see a certain sameness among these people? With just a couple of exceptions, everyone on the Fed, voting or non-voting, is an economist, teaches economics, or worked in the banking industry on one side or the other. That creates kind of a claustrophobic, one-dimensional, group-think atmosphere, wouldn’t you think?

Why aren’t there are any business people? Where is the CEO of a large corporation? How about the owner of a small business? Someone who has to meet a payroll - and pay his or her mortgage - every month? Someone who lives and works in the real world, who has to deal with the edicts the Fed hands down?

Wouldn’t that perspective - even one - be a useful new voice to be considered when making monetary policy?

Tons of busy business people find the time to serve on the boards of directors of other companies or institutions where they don’t work. Surely we can find someone who has the time to attend the eight two-day meetings the FOMC holds each year.

If Americans can’t vote for Fed officials, it’s certainly high-time to give us a greater voice. If anyone can try to get that accomplished, it’s Donald Trump.

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

11 thoughts on “Finally, The Fed Does Something Right”

Earlier, If any one have tried to read and understand the mind of average common American citizen, then he could be able to predict Trump's Victory very easily. This simply reflects what they were expected.

Remember the FED is not a function of the U.S. federal government but is owned by ten banks, eight of whom are foreign to this country. What is in the best interest of our country will frequently be at odds with the FED's owners. The FED needs to be disbanded and its function taken over by the Treasury Secretary.

The INSANE part is allowing other countries banks to determine how we live. They may actually work in their own best interest and not ours. I think it's way past time we instituted ADRs for US Stocks, and take back our own industry because without that we're going to be a third world country very soon.

What is fascinating about the above is the FED always follows the market, it never leads it. So the market drove interest rates to rock bottom, the FED followed. All you have to do is look at a chart of the one year Treasury bill yield, or even the 90 day T-bill rate to figure this out. Since both are set by the market its not hard to notice the pattern of rises in either precede rises in the FED funds rate, and the same applies to falling rates. This goes back many, many years.

The market dwarfs the FED, and all other central banks combined. But the FED and the CB's are more visible, so its easy to blame them for what the market was dictating to them. Nice way to distract the public from what is really going on.

In any event the FED is owned by the private banks, so its no surprise that the FED favors them over everyone else.